Thousands of foreclosures are being filed by mortgage lenders across the nation as a result of the subprime loan fiasco and adjustable rate interests going up and creating higher mortgage payments than home owners can afford.
How do I stop foreclosure is a common question asked by thousands of homeowners seeking relief from the burden of having too much mortgage and not enough money. Housing counseling agencies have more work than they can handle while foreclosure notice sale signs continue to add to the workload.
Home owners in trouble have to fend for themselves and work through a maze that they are ill prepared to deal with. The availability of how does foreclosure work information is a precious commodity in the present mortgage mess.
The following steps on how to fix a foreclosure is provided in hopes that it will help someone understand the foreclosure process, take action and gain some relief and possibly save a home that they have worked hard for and are laboring to keep.
(1) Begin with the proper mindset. Don’t panic. Although it’s an emotional situation, you must keep your wits about you, develop a game plan and execute it. Begin with the understanding that mortgage lenders do not want the property back. They are in the lending business not the real estate business. If they foreclose on the property several negative things might happen to them:
- They may have to buy the loan back from the investor pool they sold the loan to in the first place. Most lenders package loans, along with yours, and sell them into the secondary market for investment purposes. When they have to foreclose on a number of loans often times they are forced to take back the loans they sold and this creates tremendous pressure and loss of profits to a lender.
- When the lender takes back the property it lessens the amount of money available to lend to other borrowers because they have to inventory the property and pay for maintenance and management fees.
- The property they take back usually has no equity left in it so they are already upside down with the property.
- Congress is putting pressure on lender foreclosures causing them to lessen their foreclosure efforts.
- Lenders are now being sued by home owners who allege the loans were bogus or fraudulent in the first place and therefore they should not be held responsible for the loan. This puts pressure on the lender to renegotiate or modify the loan.
(2) Gather your documents – get your facts together before you contact the lender. Review the property loan documents and have an understanding of what your obligations were to begin with and what the lender agreed to. It’s possible the lender hasn’t done what it agreed to do. This is huge in negotiating and getting what you want. Make a budget and determine what you can actually pay as opposed to what you are paying. If there has been a change in your circumstances that affects your ability to pay such as job loss, divorce or medical bills these are very important for the lender to known.
(3) Determine whether renting or continuing to make a mortgage payment is the best route for you. You can obtain help with this decision by contacting a local housing counseling agency in your area that assists with foreclosure counseling at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.
Just click on your state and local links inside the website. Housing counseling should always be sought. It’s free, valuable and may save your home. Don’t hire a lawyer or loan modification services unless absolutely necessary.
(4) Be sure to contact the right department when you contact your lender. The department you want to insist on talking to is the “loss mitigation” department. Do not attempt to negotiate with the “collection department”. Their job is to collect and they will only be attempting to get you to pay your mortgage. Loss mitigation is where you will be able to negotiate to get your plan of action accepted.
(5) Know your options and be prepared to use them. It is not possible to go in depth with all the options available in this article. You can get more detailed information on these options by contacting a local housing counseling agency or contact the author of this article via the information provided at the end of this article. Your options may be:
- Modification – this option can be used to modify your present loan payments to an amount you can afford to pay. Usually the loan term is increased several years (usually 10-30-40 ) allowing more time to repay the loan with a lower monthly payment amount
- Forbearance agreement. The lender will agree to stop payments for a few months until your financial circumstances are better. The payments that are not made during this period of time are tacked on to the back end of the mortgage loan
- Refinance. If you have a lot of equity in the property and have had a good payment record with the lender, the lender may refinance the property to a lower interest rate or a fixed rate for a longer time period, which could lower your monthly payment
- Offer a deed in lieu of foreclosure. Here you just sign the deed over to the bank and walk away. You’ve avoided a foreclosure being on your record. Be sure to get in writing that the bank will not seek to obtain any additional expenses or payments from you should you take this avenue.
- Sell the property through a short sale. You can sell your property, even for less than what its worth, through this process as long as the bank agrees. If you have a buyer willing to buy your property and the bank approves the sale this will avoid a foreclosure. You will not be subject to any penalty for any difference between the mortgage amount and the selling amount.
(6) Have a last resort plan. If your lender is not willing to work with you there are some last resort techniques you may want to consider.
- File for bankruptcy. A chapter 13 bankruptcy filing stops a foreclosure immediately. It will give you time to work out a possible payment plan to save your home if that is your goal. A chapter 7 can accomplish the same thing.
- Have your loan documents reviewed by an attorney who has experience in predatory lending practices. If the loan documents reveal fraud or other inappropriate circumstances a lawsuit can be filed and injunctive relief sought to stop the foreclosure until the court makes a determination on the merits of the case.
- Allow the foreclosure to proceed. (Just walk away). This is the very last choice. In some states you may be subject to what is called a deficiency judgment, which means you will have to pay the lender the difference between what it obtained from the sale of the property and what was owed. Seek the advice of an attorney or local housing counselor before you take this action.
- Sources of government help to refinance a loan having payment difficulties or when seeking a mortgage loan modification. www.financialstability.gov. www.makinghomeaffordable.gov. www.treasury.gov. www.whitehouse.gov.
Roy Landers is an attorney and real estate broker with a litigation law practice representing homeowners in foreclosure, mortgage modifications and mortgage refinancing. He publishes a free consumer advocacy newsletter that can be obtained at www.landerslaw.com/foreclosures.